When Joint Life Insurance Makes Sense

When two people build a life, business, or financial future together, they often share financial responsibilities as well. While it’s difficult to think about death, a joint life insurance policy is one way to help protect those shared obligations by covering two people under a single policy.

Although it’s often associated with married couples, joint life insurance can also be used by domestic partners and business partners. Understanding how these policies work, who they help, and the different types available can help you decide whether joint life insurance makes sense for your financial plan.

What is joint life insurance?

Unlike the typical individual policy, joint life insurance, or dual life insurance, is a single policy that covers two people. This usually comes at a lower cost than two individual policies—but affordability depends on the health, age, and coverage needs of both insured people.

As with individual life insurance, the people covered by a joint life insurance policy go through underwriting and name one or more beneficiaries who will eventually receive the death benefit. Depending on the type of policy, joint coverage can help replace income, make it easier to pay rent or a mortgage, keep a business running, or support estate planning. It can also be helpful in getting coverage for someone who may not be able to qualify on their own because of a preexisting condition.

While joint life insurance is often used by married couples, it’s also open to domestic partners and for other situations. You could get a policy with a business partner, boyfriend, or girlfriend. Joint life insurance can be either term or permanent coverage, but it’s usually a permanent policy.

Types of joint life insurance policies

There are two common types of joint life insurance policies. The main difference between them is when the payout occurs.

First-to-die life insurance

These policies are often purchased by younger married couples to provide income replacement for their family if one of them dies earlier than expected. Two business partners may also find first-to-die insurance to be an effective way to ensure that their business can continue if one partner passes away.

With first-to-die life insurance, when one partner dies, the death benefit is paid to the beneficiary—the surviving spouse or partner. It can be used to pay off the mortgage or put toward other household expenses, or it can fund business expenses. For many families, the payout can help replace lost income and provide financial stability while the surviving spouse or partner adjusts to a new financial reality.

Once the death benefit is paid, the coverage ends. So, to continue protecting their family or their business, the surviving partner would need to purchase another life insurance policy. And that could be expensive if their health status has worsened.

Survivorship life insurance (second-to-die insurance)

This coverage is also known as second-to-die insurance because it doesn’t pay a death benefit when the first insured person dies. Instead, the death benefit is paid after the second insured person passes away. The beneficiary can be an estate or trust, a family member, or a charitable organization.

Survivorship life insurance is often used in estate planning strategies because the proceeds can help provide for heirs, support wealth transfer goals, or offset estate-related expenses.

Since survivorship insurance pays the death benefit after both insured people pass away, this coverage is usually permanent life insurance, which provides death benefit protection for life. Term insurance offers coverage only for a limited amount of time, such as 10 or 20 years. This means if the second spouse dies after the term limit is up and the policy is no longer in force, no benefit would transfer to the beneficiary.

At Northwestern Mutual, we offer several types of survivorship life insurance. Your financial advisor can help you figure out which type could work best for you.

Pros and cons of joint life insurance

Joint life insurance isn’t the right choice for everyone. Some couples or business partners may benefit more from two separate policies, particularly if they need different amounts of coverage or want greater flexibility. Understanding both the pros and cons can help determine which approach best fits your situation. Talk with your Northwestern Mutual financial advisor to learn about what may fit you best.

Pros of joint life insurance

• One joint life policy can be less expensive than two individual policies for healthy, younger couples.
• Joint life insurance can be used to insure a partner who has been unable to get individual coverage.
• First-to-die insurance can help a surviving parent care for their children.
• Second-to-die (survivorship) insurance can help parents create an inheritance for their children.

Cons of joint life insurance

• If one partner or spouse has health issues, joint life insurance can be more expensive than separate policies.
• With first-to-die insurance, when your spouse dies, you’ll need to apply for a new policy if you still need life insurance.
• In most cases, a joint life policy is permanent insurance, which may be more expensive than term insurance.
• Joint life policies are difficult to split or surrender during divorce proceedings.

Is a joint life policy right for you?

Whether you’re looking to replace income after the loss of a spouse, protect a business if a partner dies, or leave a financial legacy for your family, a joint policy may be a good solution.

At the same time, joint life insurance isn’t the right choice for everyone. Some couples may benefit more from separate policies, especially if they have different coverage needs or want more flexibility for the future.

Your Northwestern Mutual financial advisor can help you compare your options and determine which approach best fits your overall financial plan and what you’re building together. They may be able to point out opportunities and blind spots so that you can keep moving forward with confidence.

Frequently Asked Questions

Can domestic partners or unmarried couples get joint life insurance together?

In many cases, yes. Joint life insurance isn’t limited to married couples. Domestic partners, unmarried couples, and even business partners may be able to purchase a joint life insurance policy if they can show that they have a significant financial connection with one another, sometimes called an “insurable interest.” For example, you may split bills like a mortgage or rent, household expenses, or education for your children.

Because eligibility requirements can vary by insurer and state, it’s a good idea to work with a financial advisor or insurance professional to understand your options.

What happens to a joint life insurance policy during a divorce?

What happens depends on the type of policy, who owns it, and the terms of the divorce agreement. In some cases, former spouses may decide to keep the policy in force, transfer ownership, or surrender the policy.

Joint life insurance can be more difficult to divide than two separate policies because both insured people are covered under the same contract. If you’re going through a divorce, review your life insurance coverage and beneficiary designations as part of your broader financial planning and legal discussions.

Are joint life insurance policy payouts taxable?

Generally, life insurance death benefits paid to a beneficiary are not considered taxable income. But there may be exceptions depending on how the policy is structured, who receives the proceeds, and whether the policy is part of a larger estate-planning strategy.

Because tax rules can be complex and vary by situation, it’s important to consult a qualified tax or legal professional about your specific circumstances.

What if both people covered by a joint life insurance policy die at the same time?

The outcome depends on the type of joint life insurance policy and the beneficiaries named in the policy. In most cases, the death benefit is still paid according to the policy’s terms. If the primary beneficiary is no longer living or cannot receive the proceeds, the benefit may be paid to a contingent beneficiary or become part of an estate, depending on how the policy was set up.

Because beneficiary designations play an important role in determining where the proceeds go, it’s a good idea to review them periodically and update them as your family and financial situation change.

Is joint life insurance cheaper than two individual policies?

A joint life insurance policy is often less expensive than purchasing two separate policies with similar coverage, which is one reason some couples and business partners choose it. However, cost depends on factors such as age, health, coverage amount, and whether the policy is first-to-die or survivorship coverage.

The best option isn’t always the cheapest one. Comparing the cost, flexibility, and long-term goals of joint versus individual coverage can help you determine which approach makes the most sense for your situation.

This article is not intended as legal or tax advice. Northwestern Mutual and its financial representatives do not give legal or tax advice. Taxpayers should seek advice regarding their particular circumstances from an independent legal, accounting, or tax adviser.